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Compliance Corner
Counter Terrorist Financing

Karen Bannon July 17, 2017

While you heard how London, Paris and Manchester were targets of deadly terrorist attacks recently, you may be surprised to know the number of terrorist attacks around the world so far this year exceeds 500[1]. This number is alarming and calls for our responsibility as financial institutions to combat terrorist financing by prohibiting movement of terrorists’ funds, freezing their assets, and ultimately impair their operations.

It has been over 15 years since the 9/11 attack, the day that changed AML landscape forever. Nonetheless, stopping terrorist financing remains a significant challenge for financial institutions. According to a study by Ernst & Young[2], the Islamic State, ISIS, had a budget of up to $1.7 billion in 2015, making it the world’s richest terrorist group, and one of the most influential ones in recent years. The fact that many terrorists are residents of the countries where they have attacked, is an evidence that terrorist networks have grown beyond their country’s borders, and so have their financial needs.

According to the law enforcement investigations, donations from charities and individuals, illegal activities such as drug trafficking and using front companies are among the main identified sources for terrorists’ wealth. Charities and front companies assist terrorists by both raising and moving their funds globally through their existing resources and channels. For instance, Al Qaeda was in control of a large network of honey retail stores in the Middle East during their 9/11 attack. Through their retail business, they both raised income and transfer funds for their terrorist organization. In terms of financial products, international payments such as cross-border ACH and trade based finance are more susceptible to terrorist financing. U.S. Treasury Department and other financial intelligence units continuously provide guidelines for financial institutions to assist them in fighting terrorism by sharing the result of their investigations as well as names of those persons associated with terrorist groups.

We must use such sources to strengthen the backbones of our AML and CTF programs: Know Your Customer and Transaction Monitoring. When dealing with charitable organizations, we need not to only identify them as a client, but also their international partners, projects, and the ultimate destinations and purpose of their donations. When dealing with businesses with little or no verifiable history or associates, treat them as “high risk” and diligently examine the source of their funds, purpose of their transactions and their relationship with the transacting parties. In terms of transaction monitoring, we must go beyond the expected sanction screening at least for our high-risk clients or those using higher risk products to identify unusual behaviors and report the suspicious activities to law enforcement.

While we depend on the lists and resources provided by government agencies, we need to remember that they also rely on the information we provide. Suspicious activity reports that our institution’s file are the most effective way we can assist law enforcement in their investigations on criminals and possibly terrorist groups. Let’s be proactive and contribute to the sanction lists rather than just be a consumer of them. Next time you submit a suspicious activity report, you could be saving lives.

Related Reading 

Terrorist Financing Red Flags Indicators

The following indicators may assist to identify potential terrorist financing. Although the existence of a single indicator does not necessarily suggest that, it encourages further monitoring and examination.